Senator Paul S. Sarbanes (D-MD), Chairman of the Committee on Banking, Housing and Urban Affairs, is seeking a prompt examination of the events surrounding the recent failure of Superior Bank in Illinois. The institution, which was placed in receivership by the FDIC on July 27 had assets of over $2 billion. Reports have suggested that the loss to the Savings Association Insurance Fund (SAIF) could be $500 million, or 25% of the savings institution's assets

In an August 1 letter to the Comptroller General of the General Accounting Office, Sarbanes wrote, "The magnitude of the loss in this case raises questions about the effectiveness and the implementation of the Federal Deposit Insurance Corporation Improvement Act (FDCIA) by the financial regulators and warrants an examination by your agency." Sarbanes is asking the GAO to "look carefully at the specifics of this particular case (Superior Bank), as well as other cases addressed by the thrift and bank regulators to see whether similar issues have been raised in other institutions and whether and how the regulatory early warning system is working."

Sarbanes is also requesting the Inspector General at the Treasury Department to make its report available to the Congress. While the Federal Deposit Insurance Act requires the Inspector General of the appropriate Federal-banking agency to write a report when a deposit insurance fund incurs a material loss, such as occurred with Superior Bank, the report is made available to Congress only "upon request."

"Reports concerning this failure have raised concerns about the concentration and valuation of residual interests, the reliability of internal and external accounting, the underwriting of subprime loans, and allegations of insider lending," Sarbanes wrote to the Inspector General at the Treasury Department.

In an additional letter to the Inspector General at the Federal Deposit Insurance Corporation, Sarbanes wrote, "Given the role of the FDIC in promoting and preserving public confidence in our financial depository institutions, I request that you review why the failure of Superior Bank resulted in such a significant loss to the deposit insurance fund and make recommendations for preventing any such loss in the future."

Copies of the letters are available upon request.